[  Si  \  ni    Rkport  No.    1.] 

Of  the  Commiitec  on  Finance  en  the  Bill  (S.    1!.)  fo  provid:  for  the 
fuither  issue  of  Treasury  A'ctes,  (.nd  for  other  purposes. 

January  30,  ISG3.     Or,]crcd  to  be  priiitcJ. 


The  O'lject  of  the  proposed  measure  is  to  enable  the  Government  to 
avail  itSL-lf  of  its  whole  credit  for  the  purposes  of  the  Avar,  and  in  such 
a  manner  as  may  reduce  the  present  redundaijt  currency  Avithin  rea- 
sonable limits.  In  discussing  the  fitness  of  this  scheme  for  the  ends 
designed  to  be  effected,  it  may  be  well  to  refer  to  our  past  financial 
history,  and  to  the  system  hitherto  adopted.  Bpan  act  passed  in 
Montgomery,  and  approved  on  the  day  of  ,  the  Secret 

tary  of  the  Treasury  was  authorized  to  issue  millions  of 

treasury  notes,  receivable  in  payment  of  public  dues,  and  bearing  no 
interest,  but  with  a  provision  that  the  holder  might  fund  them  at  his 
pleasure  in  a  bond  bearing  8  per  cent,  interest.  The  act  also  con- 
tained a  section  allowing  the  hobler  of  the  treasury  notes  to  convert, 
them  iiito  l)onds  bearing  interest,  and  re-convertable  at  his  pleasure 
into  treasury  notes.  Tlie  effect  of  this  last  pronsion  was  to  enable 
the  Government  to  obtain  the  use  of  the  floating  capital,  which  in 
bank  returns  usually  ligures  under  the  head  of  deposits.  These  de- 
posits were  attracted  to  the  Treasury,  because  interest  was  paid  on 
them  until  withdrawn  by  the  holder  of  the  ''  call  certificate,"  and  be- 
cause he  could  re-convert  that  certificate  into  currency  at  his  pleasure. 
The  objects  of  the  other  funding  provision  in  the  act  were  first  to- 
borrow  without  interest  such  a  sum  as  could  be  kept  in  circulation 
thr(iugh  the  demand  of  the  country  for  currency  ;  and  secondly,  when 
these  notes  had  been  issued  in  excess  of  that  •demand  to  borrow  that 
excess  in  the  hands  of  the  holders,  by  enabling  them  to  convert  it  into 
treasury  l>ouds,  payable  at  the  end  of  years,  and  bearing  8  per, 

cent,  interest  per  annum.  Had  the  Government  been  able  to  pay  the 
interest  on  the  bonds  in  Specie,  and  had  such  a  system  of  taxation- 
been  ad^pled  as  would  have  provided  the  means  for  this,  and  al.'-o  for 
paying  the  expenses  of  the  Government  other  than  those  made  ncccs-- 


sai  V  bv  tlic  \\:\T  ;  it  is  probable  thnt  the  purposes  of  this  financial 
scheme  vouM  liave  been  accomiilished.  The  on^.y  dangers  to  -Nvhich 
this  system  vas  exposed,  Avere  iho.^e  arising  from  the  chances  of  war. 
Tthich  might  affect  the  iaith  of  the  public  in  the  ultimate  solvency  of 
the  Government.  There  is  little  doubt  but  that  af certain  amount  of 
paper  currency  can  be  kept  afloat  even  at  specie  par,  by  the  mere  de- 
mand for  it  as  a  circulating  medium.  Within  certain  limits  the 
amount  of  that  currency  depends  upon  the  portion  of  the  field  of  .cir- 
culation held  in  its  possession.  But  no  man  can  ascertain  before- 
hand Avhat  is  the  precise  extent  of  that  amount.  It  is  obvious,  too, 
that  if  the  currency  should  be  issued,  in  excess  of  that  amount  a  de- 
preciation in  its  value  must  ensue,  and  a  depreciation  in  pro))ortion  to 
that  excess.  To  guard  against  any  undue  depreciation  arising  from 
this  cause,  it  Avas  provided  that  the  holder  might  fund  these  notes  at 
his  pleasure  in  a  government  bond,  payable  at  the  end  of  years, 

and  bearing  S  per  cent,  interest.  The  value  of  the  note  then  could 
not  fall  far  below  the  value  of  this  bond.  If  such  a  bond  -were  worth 
specie  par,  the  note  would  have  the  same  value.  If  it  were  worth 
only  9!)  per  cent.,  as  compared  with  gold,  such  would  be  the  value  of 
thi  currency.  Ilail  the  interest  been  constantly  paid  in  specie,  the 
bond  probably  would  have  been  worth  nearly  as  much  as  specie,  and 
this  self-adjusting  balance  between  the  note  and  the  bond  would  have 
raa<le  our  currency  a  reasonably,  steady  and  certain  standard  of  value. 
Of  course  the  steadiness  of  value  in  the  bond  might  be  disturbed 
either  by  the  chances  of  war,  or  by  an  issue  of  these  securities  be- 
yond the  amount  of  loanable  cajiital  in  the  country.  The  first  risk 
■was  inevitable,  th^BCcond  could  be  avoided  by  a  very  little  prudence 
and  foresight. 

Unhappily  the  interest  on  these  bonds  has  been  paid,  not  in  specie, 
but  iu  treasury  notes,  and  consequently  both  have  depreciated  to- 
gether; not  perhaps  in  the  same  ratio,  but  so  nearly  in  the  same  de- 
gree that  the  one  has  proved  to  be  a  very  imperfect  check  upon  the 
excessive  issue  of  the  other. 

If  then  we  can  no  longer  fix  the  value  of  the  bond  by  its  relations 
to  specie,  the  next  best  thing  to  do  would  seem  to  be  to  fix,  if  possi- 
ble, the  amount  of  treasury'  notes  to  be  issued  in  the  shape  of  cur- 
rency. We  cannot  ascertain  the  precise  amount  of  treasury  notes 
which  could  be  kept  at  specie  par,  but  we  can  probably  approximate 
the  amount  so  nearly  as  to  prevent  any  dangerous  depreciation  in  the 
currency.  If  the  issue  could  be  thus  restricted  the  Aalue  of  the 
bond  would  be  increased,  because  the  value  of  the  interest  received 
for  them  would  be  raised.  The  evils,  too,  arising  from  a  currency 
unduly  depreciated  would  be  avoided,  and  before  very  long  the  ex- 
penses of  the  Governmc!it  would  be  diminished  more  than  one-half," 
because  prices  would  fall  in  that  ratio.  If  the  entire  issue  of  "  cur- 
rency notes"  had  not  exceeded  ^1 50, 000, 000,  instead  of  reaching  the 
amount  of  §300,000,000,  or  something  near  it,  the  estimates  for  next 
years'  expenditures  probably  would  not  have  much  exceeded  those  for 
the  first  six  months.  For  the  supplies  necessary  for  the  war,  which 
constitute  by  far  the  greater  portion  of  these  estimated  expenses  pro- 


bably  would  not  have  cost  half  as  much  as  they -will  when  these  prices 
are  measured  by  the  present  inflated  standard  of  value.  Of  course 
this  assertion  is  intended  to  be  confined  to  such  articles  as  have  pre- 
served a  constant  proportion  betAveeu  the  demand  and  supply.  The 
interest  received  ky  the  public  creditor  in  that  event  would  be  v^ortli 
twice  as  much  to  him  as  it  now  is,  and  the  public  would  have  escaped 
many  evils  yet  to  be  felt  when  the  performance  of  contracts  made 
under  these  inflated  prices  shall  be  enforced.  If  fomeching  is  not 
done  to  reduce  the  volume  of  the  currency,  it  will  continue  to  expand 
by  a  regular  progression  until  it  becomes  utterly  worthless,  and  the 
public  credit  is  destroyed. 

The  Secretary  of  the  Treasury  estimates  that  on  the*  last  day  of 
December,  1S62,  there  were  in  circulation  $290,000,000  in  treasury 
notes,  bearing  no  iutcrest,  besides  others  bearing  interest  to  the 
amount  of  $120,000,000.  In  addition  to  this,  there  must  be  a  large 
monthly  issue  of  new  notes  for  the  ensuing  year  to  meet  the  demands 
for  the  war.  He  estimates  the  new  issue  for  the  first  six  months  of 
the  year  at  more  than  $200,000,000.  It  is  manifest  then  that  unless 
we  can  provide  some  absorbent  for  this  excess  of  currency  be-yond  our 
wants,  bankruptcy  stares  us  in  the  face  The  first  step  is  to  provide 
some  mode  of  absorbing  the  $200,000,000  of  currency  notes  issu'cd 
in  the  last  year.  To  effect  this  object.  Congress  at  its  last  session^ 
declared  that  the  privilege  of  funding  them  in  bonds  bearing  8  per 
cent,  interest  should  cease  on  the  22nd  of  April,  1863,  and  that  after 
that  period  they  should  be  convertible  into  bonds  bearing  only  7  per 
cent,  interest.  To  make  the  funding  of  these  notes  still  more  certain, 
the  Secretary  of  the  Treasury  has  recommended  that  we  shall  refuse 
to  fund  them  at  all  after  the  1st  July,  1SG3.  Tliis  suggestion  bus 
been  adopted  in  the  first  section  of  the  bill  Avhich  is  now  reported  to 
the  Senate,  But  the  notes  issued,  and  to  be  issued  during  the  pre- 
sent year,  will  probably  be  somewhat  in  excess  of  the  legitimate  de- 
mand for  currency  by  the'^first  of  July,  and  must  certainly  be  largely 
so  before  the  conclusion  of  the  year,  if  .romc  means  for  absorbing  that 
excess  should  not  be  provided.  Probably  the  best  plan  for  eflecting 
this  would  be  to  provide  for  monthly  issues,  and  to  induce,  or  even 
force  the  holders  to  fund  them  at  fixed  periods.  By  such  means  the 
volume  of  the  currcnc}'-  would  remain  the  same  during  these  perioils. 
If  for  instance  we  required  only  a  monthly  issue  of  $12. .500, 000,  and 
the  holders  were  constrained  to  fund  them  at  the  end  jof  the  year, 
then  in  each  month  of  the  next  year  as  many  would  be  funded  as 
would  be  issued  during  that  month.  The  effect  of  this  would  be  that 
the  currency  wouhl  never  exceed,  or  fall  below  $1.3  ),00', i,000  during 
succeeding  years,  and  we  should  thus  borrow  $150,000,0  )0  annually 
through  the  agency  of  the  treasury  notes.  This,  like  an  invisible  tax 
collector,  would  enter  every  house,  and  gathering  contributions  from 
pence  as  well  as  from  pounds,  would  make  its  loans  from  all  capitals 
whether  great  or  small.  It  is  because  the  currency  note  is  the  most 
convenient  form  of  borrowing  money  that  governments  are  too  apt  to 
abuse  its  facilities,  until  through  the  inflation  of  prices,  the  loans  be- 
come so  exorbitant  as  to  destroy  public  credit. 


It  is  not  to  be  supposed  that  the  Congress  of  the  Confederate  States 
■with  so  many  warnings,  to  be  gathered  from  history  before  their  eyes, 
will  fall  into  a  like  error.  The  interests  of  the  Government,  of  the 
people  and  of  the  public  creditor  all  forbid  it.  Unfortunately  the 
practical  problem  to  be  solved  by  our  Legislation  j^  not  so  i^iuiple  as 
that  heretofore  supposed,  by  way  of  illustration.  The  work  is  not 
complete  when  a  provision  is  made,  which  will  secure  the  funding  of 
the  notes  issued  previously  to  first  December,  1862,  by  the  first  of 
July  1863.  Unless  fone  effectual  means  are  taken  to  absorb  a  portion 
of  those  to  be  issued  in  18G3.  There  will  probably  be  an  amount  of 
lj4UO,0lK),0U0,  or  even  more  of  these  notes  in  circulation  by  the  end 
of  the  year.'  The  proposition  made  by  the  Secretary  of  the  Treasury 
to  levy  SGO,')00,OUU  in  taxes,  it  is  supposed  will  meet  with  the  favor 
which  it  deserves  from  the  Confederate  Congress.  The  proceeds  of  the 
produce  already  bought  and  to  be  bought  with  bonds  Avill  probably 
reach  $40,001), 1)00  or  even  more  as  reckoned  in  our  currency,  which 
Ought  to  be  reduced  to  the  sum  of  $200,000,000,  or  to  ^175,000,000 
as  the  Committee  of  Finance  propo-ses.  What  is  the  precise  sum 
which  is  required  for  currency  purposes  cannot  be  ascertained,  "a 
priori.^''  We  can  only  make  an  approximate  estimate.  The  Secre- 
tary estimates  the  bank  currency  in  circulation  in  the  Confederate 
States  when  the  war  broke  out  at  $100,000,000.  But  in  addition  to 
that,  quite  a  large  amount  of  specie  was  in  circulation,  and  then  ex- 
changes to  a  vast  extent,  with  the  States  composing' the  present  United 
States,  and  with  foreign  nations  were  settled  by  bills  and  by  offsett. 
When  we  remember  that  in  our  present  state  of  isolation  trade 
and  exchanges  are  |ilinost  entirely  domestic,  and  that  these  exchanges 
in  the  present  disturbed  condition  of  things  are  mostly  made  in  cur- 
rency, it  would  seem  that  the  amoimt  of  circulation  might  safely  re- 
main at  $175,000,000.,  or  perhaps  at  $200,000,000.  Even  should  it 
reach  the  last  amount,  prices  would  probably  not  be  injuriously  dis- 
turbed. 

The  reduction  of  the  currency  to  either  of  these  sums  is  within  the 
compass  of  our  legislative  means  as  the  undrsrsigned  believes.  The 
section  of  the  bill  which  provides  that  the  notes  issued  monthly  shall 
be  fundable  within  six  months  from  the  date  of  their  issue  in  six  per 
cent.  Ijonds,  and  in  four  per  cents,  afterwards,  they  being  always  re- 
ceivable in  payment  of  public  dues,  will  probably  operate  so  as  to 
stimulate  the  funding  of  allnotes  capable  of  being  converted  into  six 
per  cents.  The  result  would  be  to  leave  those  fundable  in  four  per 
cents,  afloat  until  gradually  ncarlj'  the  whole  volume  of  the  currency 
would  be  made  up  of  them,  because  the  cheapest  currency  always  en- 
grosses the  field  of  circulation.  Should  the  war  continue  beyond  pre- 
sent expectations,  the  same  process  could  be  recommended  with  the 
notes  convertable  into  four  per  cent,  bonds.  The  precise  amount  of 
the  issues  of  the  year  which  would  thus  be  funded  cannot  be  declared, 
but  it  is  safe  to  suppose  that  it  would  be  large.  With  the  inducements 
•to  rapid  funding  held  out  by  this  bill,  it  is  not  extravagant  to  suppose 
that  one  fourth  of  the  issue  of  the  year  would  be  funded,  and  this  being 
done,  but  two  hundred  of  the  four  hundred  millions  issued  wOuld  re- 


main,  inasmuch  as  it  is  supposed  that  the  proceeds  of  the  tax  and  pro- 
duce purchased  will  absorb  about  SlO(),()()0,000  of  those  notes.  This 
would  be  again  reduced  by  the  amount  of  $5',()0(),()00,  in  call  certifi- 
cates which  would  undoubtedly  be  taken  under  the  provisions  of  this 
bill.  Experience  having  shown  that  the  demand  for  these  securities 
is  far  more  than  that  simount.  Supposing  even  that  the  issue  of  the 
year  should  reach  $5i)(),0()().0i}0  there  will  only  be  $7o,()U0,()(H)  (if 
we  estimate  upon  sucli  principles  as  we  have  done  above,)  in  notes  to 
be  absorbed  by  exchanging  for  them  bonds  guaranteed  by  the  States, 
or  bonds  with  interest,  payable  either  in  cotton  or  tobacco,  certificates 
at  such  prices  as  would  make  it  equal  in  value  to  six  per  cent,  in 
specie. 

Tlio  results  stated  above,  when  presented  in  a  tabular  foriA  would 
stand  as  follows: 

If  the  issue  of  treasury  notes  during  the  year  be       $400,.0U0,0'J{) 
Then  deduct  for  {,  which  it  is  supposed 

will  bo  funded  under  this  bill,  $100,000,000 

Proceeds  of  proposed  tax,  $60,000,000 
Proceeds  of  produce,  40,000,000 

100,000,000 

)0,000 

250,000,000 


Amount    of  notes  probably  to  be  con 

verted  into  call  certificates,  50,000,000 


Leaving  a  currency  of  150,000,000  in 
notes,  and  of  50,-000,()00  in 

call  certificates. 


$150,000,000 


If  the  issue  of  treasury  notes  be  $500,000,000 

Then  deduct  as  follows  1  to  be  funded,    $125,000,000 
Proceeds  of  tax  and  produce  sold,  100,000,000 

Call  certificates,  .  50,000,000 

275,000,000 

$225,000,000 

Til  is  sum  would  require  an  issue  of 
$75,000,000  in  bonds  to  purchase 
notes  eaough  to  reduce  the  amount 

^*0'  $150,000,000 

Or  an  issue  of  5i),000,()!)0  in  bonds  to 

reduce  it  to,  175,000,000 

Surely  enough  will  be  effected  for  the  present  if  we  succeed 
reducing  the  currency  to  $150,000,(K)0  in  notes  and  $50,000,000 
in  cal  certificates.  .  Such  an  arrangement  of  the  currency  would 
probably  be  most  judicious.  The  rcluction  of  a  greatly  expanded 
currency  within  much  narrower  limits  is  a  delicate  and  exhaust- 
ing   process   at    best,    and    ought    to    be    made    gradually.       If  the 


G 

demand  for  circulation  should  prove  to  be  far  more  than  $150,000,000, 
then  a  part  or  the  Avhole  of  the  call  certificites  would  be  recon- 
verted. If  on  the  other  hand,  a  dollar  of  the  currency  when 
issued  to  the  extent  of  $1.50, 000, 000,  was  of  less  or  of  not  more 
value  than  a  dollar  in  call  certificates,  they  could  not  be  turned 
again  into  treasury  notes.  Two  hundred  millions  of  such  bonds  as 
have  been  described  above,  in  addition  to  the  money  to  be  raised  by 
the  propojcd  tax,  and  from  the  sales  of  produce  purchased  with  bonds 
would  reduce  the  currency  of  the  year  to  $150,000,000,  even  if  its 
issue  should  reach  the  amount  of  $500,000,000.  If  then  we  could 
sell  bonds  to  this  amount  for  notes  issued  in  18G3,  we  should  attain 
the  result  recom  ended  by  the  Secretary,  supposing  none  of  these 
notes  to  be  funded  in  that  year.  This  last  supposition,  however,  is 
extravagant.  It  is  impossible  that  the  strong  inducements  to  funding 
held  out  b}'-  this  bill  should  not  be  largelj'-  operative'.  If  the  whole 
result  of  this  process  should  be  to  constitute  a  currency  i^iainly  of 
treasury  notes,  payable  six  months  after  the  conclusion  of  a  treaty  of 
peace,  receivable  in  payment  of  public  dues  and  convertible  into  four 
per  cent,  bonds,  it  would  be  a  happy  thing  for  the  country.  The 
cheaper  medium  would  be  reserved  for  cur^-cncy,  and  the  new  notes 
convertible  into  six  per  cent,  bonds  would  not  enter  much  into  circu- 
lation, but  would  be  held  at  a  premium  and  soon  be  funded.  We 
might  thus  be  enabled  to  continue  for  a  long  time  the  process  of  bor- 
rowing through  the  agency  of  the  notes,  and  so  collect  tribute  from 
all,  without  visible  constraint  upon  any.  Of  course  there  are  limits 
to  this  capacity  which  it  cannot  be  necessary  now  to  define. 

The  proposed  arrangement  of  the  currency  might  have  some  great 
advantages  in  the  future,  to  which  it  may  not  be  amiss  at  this  time  to 
advert.  With  proper  legislation  on  the  part  of  the  States  it  may  be 
made  probably  the  best  paper  circulation  yet  devised.  If  after  the 
war  this  Government  should  issue  treasury  notes  bearing  no  interest, 
but  beinj*  simply  receivable  in  payment  of  public  dues  and  converti- 
ble at  the  pleasure  of  the  holder  into  six  per  cent,  call  certificates, 
they  might  become,  with  the  aid  and  assistance  of  the  States,  the 
entire  paper  currency  of  the  country.  If  the  Statrs  would  require 
their  banks  to  receive  this  paper,  and  to  issue  none  other,  making  it 
at  the  game  time  receivable  in  dues  to  them,  and  if,  too,  they  Avould 
confine  these  privileges  to  a  certain  issue  of  notes  to  the  amount  of 
$200,000,000,  with  such  marks  as  would  distinguish  them,  then  the 
Confederate  Government  would  not  be  able,  in  times  of  temptation  to 
depreciate  their  currency  by  increasing  it  too  far. 

There  can  be  little  doubt  but  that  the  circulating  medium  thus  con- 
stituted would  be  safer  and  afford  a  steadier  standard  of  value  than 
any  paper  heretofore  used  for  that  purpose.  If  this  currency  should 
be  of  less  value  than  a  call  certificate  secured  by  the  Confederate  Gov- 
ernment, guaranteed  by  the  State  and  paying  six  per  cent,  interest,/ 
then  a  portion  of  it  would  be  funded  in  these,  certificates  until  the 
residue  rose  to  an  equal  value.  If,  on  the  other  hand,  from  any  sudr 
den  demand  this  residue  of  the  currency  should  be  worth  more  than 
the  call  certificate,  dollar  for  dollar,  such  a  portion  of  these  certifi- 


cates  -would  be  reconverted  as  would  restore  the  equilibrium  between 
the  two.  All  that  would  be  necessary  would  be  to  keep  the  value  of 
these  certificates  at  specie  par,  or  near  it.  To  do  this,  the  Govern- 
ment must  have  power  at  any  time  to  pay  off  these  certificates  in 
specie,  so  as  to  be  able  to  issue  others  at  such  a  rate  of  interest  as 
would  fit  them  for  the  discharge  of  their  function  as  a  self-adjusting 
balance.  Such  a  currency  would  have  many  advantages  over  bank 
paper  professing  to  be  convertible  into  specie.  The  first  would  pre- 
serve e^itire  our  system  of  domestic  exchanges,  no  matter  what  might 
be  the  disturbance  in  the  foreign;  the  other  invariably  impairs  if  it 
docs  not  destroy  the  domestic,  when  efforts  are  made  too  often,  in 
vain,  to  protect  and  preserve  the  par  value  of  foreign  exchange. 
When  the  rate  of  foreign  exchange  sets  against  us,  as  under  the  first 
system,  we  can  send  our  specie  abroad,  and  still  have  a  currency  sufl5- 
cient  for  domestic  purposes.  If  this  process  should  leave  a  vacuum 
in  the  currency  at  home  and  produce  a  pressure  that  vacuum  will  be 
filled  and  the  pressure  relieved  by  a  reconversion  of  call  certificates 
into  notes.  When  this  state  of  things  occurs  in  a  country  having  a 
paper  currency  professing  to  be  convertible  into  specie,  the  precious 
metals  arc  sent  abroad,  and  the  banks  to  restore  the  necessary  pro 
portion  between  their  paper  and  specie  reserves  begin  to  contract 
their  issues,  and  thus  the  vacuum  is  increased  and  the  pressure  be- 
comes greater  and  more  aggravated.  On  the  other  hand,  when  the 
rates  of  interest  and  profit  are  low  the  first  currency  instead  of  in- 
creasing or  becoming  redundant,  begins  to  contract  because  of  the 
increased  relative  value  of  the  call  certificates,  and  tliis  process  goes 
on  until  money  becomes  more  valuable  and  speculation  is  checked. 
But  if  the  rates  of  interest  and  profit  become  lower  under  a  converti- 
ble paper  currency  the  community  use  more  of  that  money  that  the 
same  income  may  be  derived  at  a  less  rate  of  profit,  and  speculation 
is  encouraged  when  it  ought  to  be  restrained.  In  short,  the  first  ex- 
pands when  ii  ought  to  expand  and  contract  when  it  ought  to  contract. 
The  second  expands  when  it  ought  to  contract,  and  contracts  when  it 
ought  to  expand.  Any  interest  which  the  banks  might  have  against 
an  arrangement  which  deprived  them  of  the  right  to  issue,  is  more 
apparent  than  real.  The  advantages  which  they  sometimes  derive 
from  that  issue  are  more  than  counterbalanced  by  the  injury  which 
they  so  often  sustain  from  the  "frivolous  uses"  of  such  paper.  Their 
business  would  thus  become  far  safer,  and,  upon  the  whole,  more  pro- 
fitable. Should  this  plan  become  practicable  and  be  deemed  eligible  it 
would  enable  the  Confederacy,  on  the  one  hand,  to  borrow  $  1 51 ), ODD, I lOt) 
without  interest  and  for  an  indefinite  period,  whilst  the  States,  on  the 
other,  could  use  this  issue  to  establish  a  far  better  and  safer  currency 
than  they  have  ever  had  in  bank  paper. 

But  Avithout  adverting  further  to  the  capacities*  of  this  scheme  of 
finance  for  future  developments,  it  is  enough  to  say  that,  if  this  bill 
operates  as  there  is  reason  to  hope  it  may,  great  good  must  result  to 
the  country.  Much  will  be  effected  if  the  progressive  expansion  of 
the  currency  can  be  prevented,  still  more  if  it  can  be  reduced  within 
safe  and  reasonable  limits.      When  prices  increase  rapiilly,  not  from 


8 

anv  change  in  the  relation  of  deniaml  ami  supply,  but  from  a  progres- 
sive expansion  in  the  circulatihg  medium  -which  mea.sures  it,  and  the 
government  is  running  in  debt  largely  for  supplies  furnished  at  these 
prices,  it  is  e&sy  to  see  that  this  process  must  end  in  national  bank- 
ruptcy. History  has  told  this  tale  so  often  that  it  would  be  super- 
fluous to  repeat  it.  Justice  to  the  public  creditor  and  the  people  all 
demand  that  vre  should  do  whatever  is  necessary  to  correct  the  depre- 
ciation in  our  currency,  which  must  soon  become  fearful  if  some  ade- 
quate remedy  be  not  applied  to  the  evil.  A  scheme  which  will  jemove 
from  circulation  the  great  mass  of  notes  issued  in  the  past  and  pro- 
vide for  the  future  that  after  six  months  have  elapsed,  as  many  or 
nearly  as  many  notes  will  be  funded  in  a  month  as  may  be  issued  in 
that  time  would  do  much  service  even  if'  it  effected  nothing  more. 
For  a  currency  fixed  in  its  volume  and  preserving  a  constant  relation 
to  specie,  although  not  equal  to  it  in  value,  Avould  enable  individuals 
and  governments  to  adjust  their  contracts  upon  some  steady  standard 
of  value.  Still  better  would  it  be  to  reduce  the  currency  to  some- 
thing like  its  true  value  and  to  preserve  that  equilibrium.  To  do' 
ihis  would  increase  the  real  value  of  the  bond  in  the  hands  of  the 
public  creditor.  If  paid  six  per  cent.  in.  a  medium  worth  as  much 
as  specie,  his  interest  would  be  worth  three  times  as  much  as  if  paid 
in  a  currency  worth  only  one-third  as  much  in  specie.  In  the  first 
case,  on  a  hundred  dollar  bond  having  twenty  years  to  run,  he  would 
have  received  at  the  end  of  that  time,  on  principal  and  interest,  $220, 
on  the  other  supposition,  he  would  have  received  during  the  same 
period  but  $141).  Reckoning,  therefore,  according  to  actual  or  specie 
value,  the  bond  would-be  worth  much  more  in  the  first  case  than  in 
the  second.  It  has  been  said  that  if  the  quantity  of  treasury  notes 
in  circulation  be  reduced,  the  bond  will  fall  as  the  note  increases  in 
value.  Measured  by  treasury  notes  this  may  be  the  case,  but  if  meas- 
ured by  specie,  both  the  bond  and  the  note  increase  in  value 
as  has  been  just  shown.  '  The  interest  of  the  government  in  this  re- 
duction is  still  more  manifest.  If  a  great  quantity  of  flour,  meal  and 
other  supplies  must  be  purchased  annually  for  the  army|piid  navy. 
When  you  double  the  currency,  other  things  being  equul,  you  double 
the  amount  of  your  debt  and  the  interest  payable  upon  it,  and  if  the 
increase  in  currency  is  to  be  progressive,  no  national  credit  can  bear 
up  under  such  a  weight.  That  individual  citizens  have  a  deep  inter- 
est in  preserving  something  like  the  level  of  the  currency  of  the 
v.orld  in  that  of  the  country,  is  a  proposition  too  plain  to  be  argue,d. 

It  is  true,  however,  that  the  return  from  an  inflated  currency  to  the 
proper  standard  is  an  exhausting  process  if  it  be  not  gradual.  That 
this  will  be  gradual  enough,  and  that  no  severe  pressure  can  occur 
under  the  proposed  scheme,  is  in  every  way  probable.  A  large  amqunt 
of  currency  issued  prior  to  the  first  December,  1862,  will  be  withdrawn 
by  degrees  from  the  circulation  until  the  first  July,  ISG3.  By  that 
time,  the  Secretary  estimates  that  there  will  be  more  than  ^200, OUK,- 
01)0  of  new  issues,  and  in  addition  to  all  this,  there  will  be  issued 
monthly  thirty-five  or  forty  millions  of  notes. 

If  there  should  be  a  great  demand  for  money  then  will  not  bo  funded 


9 

until  the  pressure  passes  away.  The  notes  fundable  in  sixes  will  be- 
come convertible  into  fours,  and  this  process  will  continue  until  the 
currency  is  gradually  constituted  of  tnese  last.  The  call  certificates 
into  which  many  of  them  w^ill  be  converted  w'hen  they  become  plenti- 
ful, will  be  a  reserved  fund  from  which  such  notes  can  be  supplied,  if 
any  sudden  demand  should  spring  up. 

There  is  some  plausibility  in  the  suggestion  that  the  Kiw  which  de- 
nies to  the  holder  of  our  notes  the  right  to  fund  them  after  the»  first 
July,  1863,  is  a  breach  of  the  promise  upon  which  the  public  creditor 
relied  when  he  took  them.  The  pledge  being  that  he  might  convert 
them  into  eight  per  cent,  bonds  at  any  time  before  they  were  payable 
as  provided  by  law.  But  when  the  circumstances  of  the'  case  are 
properly  considered,  it  will  be  found  that  some  measure  which  attains 
the  ends  to  which  this  bill  looks  is  indispensable  to  a  substantial  per- 
formance of  the  contract.  The  chief  things  which  made  the  note 
valuable  in  his  eyes,  were,  first,  that  the  principal  was  to  be  paid  six 
months  after  peace  ;  secondl^L,  that  he  might  fund  this  note  in  a  bond 
bearing  eight  per  cent,  interest,  if  he  chose  to  do  so;  thirdly,  that 
the  interest  should  be  p;iid  as  promised  him. 

If  we  succeed  in  effecting  what  is  proposed  by  this  bill,  we  shall 
preserve  the  ability  of  the  Crovernment  to  pay  as  promised ;  we  shall 
give  to  tlie  public  creditor  ample  time  to  fund  his  note  in  an  ei»,-ht  per 
cent,  bond,  and  when  funded  we  will  pay  the  interest  in  a  medium  of 
a  value  so  much  enhanced  as  will  make  it  worth  probably  twice  as 
much  as  it  is  at  present.  On  the  other  hand,  if  the  currency  continue 
to  expand  at  its  present  rate,  it  is  easy  to  see  that  it  will  become  so 
depreciated,  and,  consequently,  that  the  public  debt  Avill  grow  to  be 
so  large  that  his  chances  for  the  ultimate  payment  of  the  note  or  bond 
will  be  small,  and  that  the  interest  on  the  bond  into  which  he  may 
convert  his  note  will  be  paid  in  a  worthless  medium.  The  emergency 
is  pressing,  and  we  cannot  take  the  sense  of  all  the  public  creditors  in 
time  for  efficient  action.  It*is  a  case  in  which  we  must  judge  for 
them  as  well  as  for  ourselves.  Can  any  man  doubt  but  that  they 
would  chc||se,  as  we  have  done,  between  the  real  alternatives  which 
are  presemed  for  our  action. 

For  all  these  considerations,  and  in  view  of  the  pressing  emorgency 
in  which  we  arc  placed,  the  committee  have  reported  the  accompany- 
ing bill,  which  they  rccommed  for  the  adoption  of  the  Senate.  That 
bill  is  designed  to  furnish  the  Secretary  of  the  Treasury  with  the 
means  to  carry  on  the  Government,  so  far  as  that  can  be  effected  by 
the  issue  of  treasury  notes,  but  under  such  limitations  and  provisions 
as  may  reduce  the  amount  of  these  notes  in  circulation  to  the  sum  of 
$17.5,m)i),()U(). 

To  effect  these  objects  they  first  authorize  the  monthly  issue  of 
$5l),()t)l),()00  in  such  notes,  and  this  is  done  not  because  the  Secretary 
of  the  Treasury  is  expected  to  put  forth  :g6m),0()0,()l)0  in  the  year, 
but  to  cover  the  maximum  amount  which  may  be  required  in  any 
month. 

Next,  in  order  to  curtail  the  circulation  they  provide  for  the  fund- 
ing of  all  treasury  notes  bearing  no  interest,  and  issued  before  the 
2 


10 

1st  of  December,  1862.  of  all  call  ccrtiBcates  representing  those  notes, 
and  of  all  treasury  notes  bearing  7.30  per  cent,  interest  by  the  first 
of  July,  1863.  To  do  this  they  take  from  the  first  class  the  privilege 
of  being  fundable  or  receivable  in  payment  of  public  dues  pfter  that 
day,  and  they  convert  the  second  and  third  classes  into  six  per  cent, 
bonds,  if  not  funded  before  that  period.  They  then  require  all 
notes  issued  or  to  be  issued  within  ten  days  after  the  passage  of  the 
act,  which  are  fundable  in  seven  per  cent,  bonds,  to  be  so  funded  on 
or  before  that  date  or  iftcrwards  to  be  fundnble  only  in  four  per  cent, 
bonds.  The  new  issues  under  the  bill  as  proposed,  are  to  be  funda- 
ble in  six  per  cent,  bonds,  within  six  months  from  the  1st  day  of  the 
month  of  their  is- sue,  but  afterwards  to  be  convertible  only  into  four 
per  cent,  bonds. 

The  object  being  to  stimulate  funding  within  the  six  months  by 
diminishing  not  their  currency,  but  their  fundable  value  after  that 
period.  For  it  is  supposed  that  the  notes  fundable  in  four  per  cent, 
being  the  cheaper  medium,  will  be  used  for  currency,  Avhilst  those 
fundable  in  six  per  cent,  within  the  six  months,  will  be  converted  into 
bonds  during  that  period  to  a  large  extent. 

In  addition  to  these  provisions,  designed  to  stimulate  funding,  the 
Secretary  of  the  Treasury  is  authorized  to  use  bonds  to  purchase  so 
many  treasury  notes  as  to  reduce  the  entire  value  of  those  bearing  no 
interest  to  $175,000,0(10.  These  bonds  maybe  of  either  of  three 
classes,  at  his  option.  First,  he  may,  if  he  chooses,  sell  Confederate 
bonds  to  the  States  for  treasury  notes  at  par;  secondly,  he  may  sell 
Confederate  bonds  guaranteed  by  the  States  for  treasury  notes;  and, 
lastly,  he  may  purchase  them  with  bonds  whose  interest  is  payable  in 
currency  or  cotton,  at  the  pleasure  of  the  holder.  In  addition  to  all 
this  the  Secretary  of  the  Treasury  is  authorized  to  use  the  proceeds 
of  the  sales  of  produce  which  may  be  purchased  under  existing  laws 
or  laws  yet  to  be  passed,  to  buy  up  treasury  notes  at  the  market  rates 
until  the  amount  in  circulation  shall  be  reduced  to  $175,000,000, 
within  which  limit  the  currency  will  be  safe,  both  for  the  Government 
and  the  people.  ^ 

All  which  is  respectfully  submitted  by 

R.  M.  T.  HUNTER. 


